I promised to let you know when the Til Debt Do Us Part Life Planner became available. You can buy it from Frantic Films now. Go buy it now!
Life Planner Now Available!
November 21st, 2008Why Do You Want to Retire?
November 21st, 2008I can’t believe all the people I meet who are looking forward to retirement. And then there are all the people who are dreading it because they believe they’ll be destitute. You’re going to stop doing purposeful work, stop being with your friends, stop earning because… why?
I’ve always believed retirement is a really, really bad idea. I have no intention of ever retiring. There are times I work more than other times (during which I save up money so when I’m not as gainfully employed I have a stash of cash.) But I’m going to die in my boots. The idea of waiting for my Friday Hair Appointment while Waiting For The Kids To Call is anathema to me.
Statistics show that when people retire, they lose their social skills, they get poor and they die. Sometimes they die within weeks of their retirement. No, they weren’t sick. They just up and kick the bucket because, well, as Albert Einstein says, “Life is like riding a bicycle. To keep your balance you must keep moving.”
As for early retirement… Freedom Fifty-odd… bah! In one study, researchers found that settling into your Golden Years at age 55 doubled the risk for death before reaching age 65, compared with those who worked past age 60.
I’ve been a proponent of Restyling, as opposed to Retiring. While you may not want to do the job you’re doing right now, you can restyle to do another job, have another career, find another way to make a meaningful contribution while you make some money. Maybe not as much as before. Maybe more.
Perhaps the reason people are so hell-fired about retirement is The Grass is Greener Syndrome. Kind of like, “my life sucks and what you do looks better.” But you know what? The grass isn’t greener, and if your life sucks, why in heaven’s name would you wait until you were 55, 60 or 65 to fix it?
For many people work isn’t separate from life — it’s a part of it. While it may not be fun for some, for others it’s a passion. Either way, it’s a part of our lives, good or bad. The trick is if you’re in the ‘bad’ category, you need to start looking now at what you can do differently, as opposed to just sucking it up until you can retire.
People are always talking about striving for work-life balance. When you’re doing something you really love, you don’t need to cut back so you can up your Couch-Potatoing. Instead of tossing work out the window completely, maybe the trick is to find something you love, get really good at it, and then restyle your life so that you can do more of it, and make some money too. People who are passionate about personal fitness become fitness instructors or personal trainers. What, you don’t think you need to stay flexile when you’re old? People who are passionate about gardeners learn to landscape. All that life experience comes handy, doesn’t it? People who are passionate about design, cooking, photography, mechanics, animals… well, you get my drift.
Maybe it’s time to take a Big Picture look at your life — how are you spending your time right now? This is one of the exercises I used in my Retirement Answer Book (no longer in publication). I asked people to create 24 blocks for a day, over 7 days (so you’ll end up with 168 blocks), and colour in the squares with different colours that represented how many hours they worked, played, did personal hygiene stuff, took care of their families, and whatever else they did in their lives.
Of those things, what do you enjoy doing? What do you want to carry with you through the rest of your Whole Life? What do you want to eliminate? How are you going to do that?
Having the life you want should not be a case of holding your breath until you can retire. You should be working hard right now to create the life you want, while you’re aware of the restyling you may have to do as you slow down.
The home inspector I just worked with is in his 70’s. He loves his job. He’s the best at in. AND he works with his wife, who is also a home inspector. They tool around together, having fun, helping people like me, and earning $400 a pop to boot. Why would he ever retire?
Take a Good Idea and Make It Yours
November 20th, 2008Tasha and I were talking yesterday about the Manulife One product. She’d seen the ads on TV and was wondering if it was too good to be true. It’s not. The Manulife One is an excellent example of how a financial institutio can come up with a great idea… or at least steal it from Down Under.
I’ve blogged on the Manulife One before. The idea behind it is simple. If instead of using a chequing account and a mortgage, you deposit all your money into the Manulife One account, which also holds your mortgage and line of credit, then every day the money is in the account is a day you’re not paying interest on that part of your debt. In other words, it’s like making a prepayment against your mortgage. Then, when you need the money, you pull it out again. But for the time the money is applied against your debt, you save on interest. And since chequing accounts pay nothing, it’s a great way to put your money to work for as long as it’s in your hot little hands.
I told Tasha she could probably set up exactly the same system on her line of credit. Here’s how:
- When she and her husband get paid, they’d transfer all the money to their line of credit to pay it down,
- They would ask their bank to link their LOC to their chequing account so that when a cheque or debit had to clear, it would come off the line. If the bank couldn’t do that (gawd, some of them are so archaic with their dumb “systems,”) then she’d simply use the line to pay everything, transferring money into her chequing account to cover stuff as necessary.
- Another way to do it would be to put everything they usually put through their bank account on a single credit card. I do this with my telephone bill, internet, satellite, and a host of other fixed expenses. Then they would use the line to pay off the credit card every month. It would save all that transferring action since everything could be paid from the line in one swoop. And since the card would be paid in full each month, there’d be no interest.
There ya go: A TashaOne Account… an account that let’s her use the money in hand to reduce her interest costs for as long as she has that money, while banking right where she is happiest.
Of course, you have to be incredibly disciplined to make this work. You can’t increase your line… you have to pay it down consistently. And you have to live on a strict budget so your spending doesn’t get out of hand and drive your line of credit balance through the stratosphere.
If you’re committed to putting every extra cent you have towards getting your line of credit paid off, and you’re living on a budget so your spending is totally within limits, then you too can create a (yournamehere)One Account and put your hard-earned money to work every single day it’s in your account!
Love Vs Financial Incompatibility
November 19th, 2008He comes from the wrong side of the tracks and has been working like a dog since he was 14. She’s a princess and her folks paid for everything. He makes great money working construction. She’s doing a something-job that nets her a quarter of his take-home pay, but she won’t break a nail doing it. He’s focused on the big things like buying a home and creating security for the family. She’s all about shoes.
The roles could just as easily be reversed, with him drinking beer and buying crap, and her busting her butt to make it all balance every month.
It doesn’t really matter who’s focused and who’s in a daze, if you’re in a relationship where one person is all about doing the right things, and the other person is all about him/herself, then the question is, can the relationship last?
While we’re all familiar with the saying, “Opposites attract,” the reality is that most couples don’t stay “opposites”; they end up compromising on a bunch of really important issues in order to make their relationships work. People change their religious beliefs for a partner. They forgo family to keep a spouse happy. They may even compromise on the kind of work they end up doing – a big sacrifice considering how much time we spend working.
But how do you survive a fundamental difference in how you deal with money? If one of you thinks the wedding should happen in the backyard while the other insists on blowing $60,000 on the party, how do you compromise? If one person believes that having some money saved is Priority 1, while the other is constantly whining about what they can’t buy, how long can you keep it up?
Is it possible in the real world for love to overcome totally different attitudes towards money? Can partners get over the fact that one person makes waaaay more than the other? And if you can’t even talk about the money, how can you possibly hope to create a life together?
I believe that couples who really love each other and are prepared to work together to make a plan can overcome the baggage they bring to the relationship. And I think couples who truly want to succeed together can change, meeting somewhere in the middle. But ya know what else I think? I think it’s a really, really hard thing to do.
If one person has to bully the other to keep the balance in the Balance Sheet, it’ll never work. And if one person is doing all the compromising, it’ll never work. It truly does take a team effort to ensure that both peoples’ needs – and the needs of the family – are met.
Let’s take my friends Laura and Thomas as an example. Both have degrees and student loans. They both have terrific jobs with great benefits. They decide to buy a pretty expensive house in the city together, and Thomas works hard at doing all the stuff around the house to make it a great place to live. Laura decides that with each of her two children she’d take extra time off work. So they have a nice home and they’re focused on their family, but their incomes have dropped off. Now comes the tough part.
Despite the fact that they’ve agreed to everything they’ve done so far, Laura is feeling denied. Without the extra money from her full-time job, they’re scrimping to make ends meet. Thomas hates debt, but Laura feels it isn’t so bad because later, when she’s making great money again, they’ll pay it off easily. She’s frustrated because she doesn’t get to take the same fancy vacations her friends take. She doesn’t get to buy the clothes she’d like, or go out with the girls as often as she’d like. Meanwhile, Thomas is happy to come home, be with his children, cook a meal and clean up. Laura wants to go out for dinner. She is tired. The two kids are a handful. She needs a break. And then Thomas discovers that Laura has just spent $3500 on a credit card buying stuff for the house and some new clothes for going back to work. He flips, grabs her cards and cuts them up. She cries. She yells. She’s had it with his stupid budget!
Every day, people are living Thomas’s and Laura’s lives. I personally know three couples who fit this profile. They’ve got different needs, different wants, and they just can’t find a way to compromise on their differences.
It isn’t really about the money, y’know. Nope. It’s about the fact that they have different priorities. It’s a struggle for power – and the money is the tug-o-war rope. According to one poll, 84% of people asked reported that finances caused tension in their relationships. Fifteen percent said they fought about money several times a month. Wow! That’s a lot of conflict.
So how many of you have been surprised to find yourself in a relationship where your partner’s approach to handling money is different from yours? And how do you deal with those differences? Would you ever consider leaving your relationship because you just can’t make it work financially? And if you stay and stay and stay, what’s the cost to you personally? And to your family?
These are tough questions, I know. But they are the questions we should be asking ourselves BEFORE we launch into a committed relationship. While it may be easy — and convenient — to turn a blind eye to the financial shortcomings of a future partner, especially while we’re in the throes of all that romantic and sexual excitement, is it really worth the pain of waking up with a car-load of children only to discover your buddy’s on a different road, and headed for the dump?
Self-Insurance? What?
November 18th, 2008Director Nathalie has a first job; she’s a classical harpist. And boy is she good. So one day I arrive to set and Nats wants to talk about what she should do with her insurance on her harp. It’s costing her almost $500 a year, and after listening to me prattle on about cutting costs, she things this may be a cost she’ll cut. Whoa there Momma.
First I ask what it would cost to replace her harp. About $16,000 she say. Okay, say I, so do you have $16,000 in the bank to buy a new harp right now? No, she shakes her head, a little stunned at the question. Then you definitely SHOULD NOT cancel your insurance.
I explain to her that when she buys insurance on her harp, she shifting the risk for taking care of a disaster from herself to the insurance company, and the $42 premium she’s paying is the cost of the insurance company accepting that risk. Huh?
Well, let’s say you decided to self-insure, which was what she was proposing. If the harp broke in 2 years, she would have $42 x 12 x 2 - $1008 saved in her self-insurance pool. How would she come up with the other $15K?
Most people would just put it on credit. Credit has made insurance seem like a useless product because people have, to a large extent, had an endless supply of money available to solve any problems. But credit shouldn’t be used as insurance since the cost in interest if far higher that the insurance premium.
So how long would it take Nats to come up with the full $16K if she were banking her $42 a month premiums? 381 months, or almost 32 years! So for 32 years, she’d be at risk, having to cover the cost of the new harp to some degree, when for $42 a month she wouldn’t have to think about it.
Every time she loaded that sucker into the car – which she does fairly often to get her gigs – she would be worried sick about what she was going to do to come up with the money to replace it if the worst happened. Ditto every time she arrived home and had to unload it.
That’s a lot of worrying. And that’s exactly what insurance is designed to do: eliminate the worry.
Insurance has a bad rap. If you make a claim, they raise your premiums. They put you through the ringer because they don’t want to make a payout. There are even stories about life insurance companies not paying out when the body insured actually drops dead. Com’on, do I have to drop the body of at head office to get the money?
Companies sometimes forget that the purpose of their existence is to produce what they’re producing. Car companies make cars. Shoe companies make shoes. Insurance companies create peace of mind by offsetting risk. What we’ve seen since the early 1980, is a shift in companies’ focus from doing their jobs to “meeting shareholders’ expectations” Hey, people who invest shouldn’t have any “expectations,” and shareholder expectations should NEVER stand in the way of dealing with every single customer as valued and respected. So whenever people are badly treated by any company, be it a little thing, or a big thing, they should bray it all over, tell everyone, and stand in the store and shout it at the tops of their voices to warn the other would-be customers.
But you also can’t paint an entire industry by the bad behaviour of a few players. There are reputable insurance companies who take their jobs seriously and make sure their clients receive the services they’ve paid for.
And we should do the math before we decide that insurance is just money down the drain. If Nathalie never has the need to buy another harp because she dropped hers, she should say, “thank you” for not having to deal with that stress. In the mean time her $42 a month has bought her years of piece of mind and a sense of safety. Money well spent.
Living on One Income
November 17th, 2008I am truly amazed at the number of people who go into parenthood for the first time without a clue about what the implications will to their financial health. So you’re planning to take a year away from your job and live on the pittance that is maternity benefits and you don’t think that’ll cause some financial constraint? Really?
I regularly meet and hear from people who just can’t figure out what they could have done differently. Ditto the people who chose to go back to school, but give no consideration to keeping body and soul together as their minds soar. Or the people who have to move from two incomes to one because of myriad other reasons.
The first thing you should do when you’re considering a step that would see your family income go down is pay off your debts and build up your emergency savings. If you were racking up debt on two incomes, imagine how deep a hole you can dig yourselves on one income if you don’t do some PLANNING.
Stay away from big financial commitments. I can’t believe the people who think a new baby means they have to go out and buy a new car. New parents with their heightened safety awareness are suckers for the hard sell on everything from safety and added space, to “convenience.” People actually whine about why they needed that new van. Hey, I transported two kids in an old Prelude for years, and it didn’t hurt one bit.
And what’s the obsession with NEW. There are plenty of safe, roomy, convenient options in the used car market. If you’re planning on living on one income, you probably can’t afford a new car!
I think the thing that may be hardest for people, is watching what two-income families can afford that they cannot. The temptation is to act like a two-income family while living on one income, using credit to fill the gap. Oooops! Big Mistake.
But it’s not all about what they can’t have. If you’re making the decision to become a one-income family so you can stay home with baby for a year, or for many years, then you have the offsetting benefit of being able to raise your own children. In this day and age, that’s a real privilege since many people simply can’t make that happen. If you’re cutting back on income because you’re going to school, then you know you’re going to have a more fulfilling work experience later on.
One-income success rides on your ability to prioritize your NEEDS and your WANTS. If you let everything you want be a NEED, you’re doomed. If you can clearly distinguish, prioritize and make choices, you can make a success of your one-income experience.
Go over your budget with a fine-tooth comb and differentiate the MUST HAVES from the WANNA HAVES. Will you dispense with your annual vacation? Could you do without a second car? Do you really need 500 channels? And if you have a cell phone, do you also need a landline?
Now, of the MUST HAVES: Are their ways to cut back? Would you be willing to re-amortize your mortgage over a longer period of time so your payments are lower? Would you downsize to a smaller dwelling? Are you prepared to cut back on utility costs by hanging clothes out on the line or turning off lights? Will you buy store-brands and shop with coupons?
You may find that with all your trimming, you still can’t find a way to get to the end of the month before you get to the end of the money. But having trimmed back to the bare ones, you have a good idea of how much you need to bring in. Perhaps, babysitting other children is an option, or working nights or weekends when your partner can be home with the kids. If you’re a student, get a job that complements your school schedule, and perhaps even let’s you do homework. Working as an over-night caregiver a couple of nights a week, doing neighbourhood errands for shut-ins, or tutoring other students could give you just enough to make your plan work.
Of course, there’s no better way to test your plan than to TEST YOUR PLAN. So if you’re going off on mat leave, spend the months leading up to your mat leave living on one income. Use the income that will be eliminated to aggressively pay down debt and build up an emergency fund. Practicing your new economic reality will also give you the opportunity to tweak your budget so you know it will work once you’re actually down to one income.
Wishful Thinking
November 14th, 2008I’m a big believer in optimism. One of my mantras is:
Plan like a pessimist so you can live like an optimist.
But being optimistic and being delusional are very different things. Making financial decisions based on what you hope will happen isn’t Optimism. It’s Wishful Thinking.
Did you buy a home with zero down? Did you transfer your debt to your home by refinancing and then keep your credit cards active? Did you take advantage of a buy-now-pay-later and then let it expire? Then YOU fall into the category of Wishful Thinker.
People who believe that were we are now is where we’re going to stay — that the crazy times would continue indefinitely and huge home value gains would eventually take care of whatever problems they created for themselves by using credit — are Wishful Thinkers. If they had taken the time to consider that what we were experiencing with the rising home values wasn’t “normal”, they might not have been suckered into believing they could have it all at once.
Investing is another world in which Wishful Thinking does us no good. Chasing hot performers is how Wishful Thinkers end up losing lots of money.
Did you know that people are actually hardwired to over-react to recent events? This works if you’re a forager. If you’re looking for food the best place to look is where an animal was yesterday. But the economy is a different kettle of fish and no matter how often you hear that the markets are rationale, they are not.
Despite dire warnings not to do so, we continue to use our forager brains to consider what will happen next in the economy. No matter how much the experts talk about market cycles, investors cling to the idea, ill formed, that wherever we are today in the markets, that’s where we’ll stay. So if we’re in a rising market, the market will continue to soar, and as we have experience most recently, a downturn in the cycle can make people run screaming for the exits.
Wishful Thinkers also think that bad things can’t happen to good people. But they can. And they do. From divorce to illness, from job loss to creditors calling loans, there’s a lot of room for disaster. Even the little things like increases in gas costs, food costs, interest costs, can add up to a big fall, especially when your pay cheque hasn’t grown much. So if rising costs are pushing you further into debt because now you’re using your credit cards or lines of credit to buy food, just know that you got there because of your Wishful Thinking. Had you set aside some money for an emergency, instead of always believing There Will Be More Money, you would have found it a lot easier to deal with life’s curveballs.
Perhaps the Wishful Thinking I am most impatient with comes from the people who believe it’s okay to spend money they haven’t yet earned. People, if you can’t afford it today, it’s just going to be worse tomorrow when you add on the interest. Buying anything on credit when you know you won’t be able to pay the bill in full at the end of the month means you think that you will be able to afford to pay the bill later. More Wishful Thinking.
Guarantee Your Success
November 13th, 2008Often when we set goals for ourselves, they’re big goals. We want to be debt free. We want to have enough saved for retirement. We want a big, fat emergency fund, just in case. While we’re gung-ho when we set the goals, because they are big they are also long-term. And long-term financial goals can seem like impossible achievements when that gung-ho turns to ho-hum.
No matter how big a goal, it takes small steps to get there. And taking the time to set milestones so you know you’ve achieve those small steps is the best way to stay motivated, and keep on truckin’ toward your goal.
Milestones work because they let you celebrate your incremental successes along the way. And that helps to keep you motivated to make wise financial decisions day to day.
Let’s say you want to be debt-free. Broken down, that means you may want to be free of all your consumer debt within 3 years, your student loans within 5 and your mortgage by the time you retire.
If you’re snowballing your consumer debt repayment, then you already have a list of individual debts. All you have to do now, is write in the date by which you want to banish each individual debt. When you do, you’re going to reward yourself by… whatever turns your crank that doesn’t cost tons but makes you feel great.
A longer-term goal such as having your mortgage paid off at retirement may not seem to have many milestones. And if all you do is keep paying your mortgage on the schedule you’ve chosen, then this goal is a no-brainer. But if having paid off your consumer debt you decide you want to pay off your mortgage earlier, in addition to a long-term goal, you’ll need to set annual milestones. So you might decide that you’re going to put a principal prepayment of $6,000 against your mortgage every year, which means you’ll have to set aside $500 a month in your budget. Have that money auto-debited to your Mortgage Prepayment Savings Account and you’re on your way. Make the annual prepayment and you owe yourself a treat!
When it comes to saving, there can be several pools you’re trying to build: the Essential Emergency Expenses pool, the Retirement pool, the Educational Savings pool.
To save your Essential Emergency Expenses, you first have to decide how much you’re going to save. Will it be three months of your net income? Will it be six-month’s worth of your Essential Expenses? You might then decide it’ll take you half a year to save your first month’s worth of Essential Emergency Expenses. Once you bag that, grab a reward and start on the second months’ worth. Get the picture?
When it comes to setting milestones for your long-term savings, you can do it either based on an actual dollar amount as in this year I’ll save $100 a month; next year I’ll save $200. Or you can base your savings on a percentage of your income. This year I’ll save 10%, next year 12%, and so on. Your ultimate goal should be to contribute the maximum amount to your retirement plan that you are allowed by law. It may take several years to work up to the top limit, so setting milestones along the way will help keep you motivated toward your goal.
Create any number of milestones to help keep you focused and feeling great about your accomplishments. The smaller the step to achievement, the more successful you’ll feel. Pretty soon you’ll be so focused on the final outcome because you’re so used to being successful that the small rewards will pale in comparison to achieving The Big Goal.
BTW: A ton of people have been asking for the Budget Binder. Well, we’re going one better. Available for 2009 (on sale shortly), the Til Debt Do Us Part Life Planner is just the ticket. One part Agenda, the TDDUP Life Planner has month at a glance and week at a glance pages to you can get and stay organized. One part Financial Guide, the TDDUP Life Planner also has loads of tips and strategies you can use to get your money management on track. And it has the Budget Binder pages built right in. It’s a terrific tool that can help you create the life you want. I’ll let you know as soon as orders are being accepted. Since it’s the first year we’re doing it, the number of Planners available will be limited, so don’t diddle-daddle.
Four Piles of Money
November 12th, 2008I’ve always thought of my money in piles, separate and distinct, with a purpose or a place. Maybe it’s because I’ve been self-employed forever and run my own small biz. The money that comes into the business is the business’s money, and doesn’t become mine until the business has paid me. The money that I put in the house account to pay the bills isn’t for buying stuff… it’s for keeping the home fires burning. And my emergency fund… well, that’s for emergencies of course.
Perhaps one of the biggest problems people have is that when they see they have money in the bank, they think they can spend it on whatever they want. And if there are two somebodies, and they both have that attitude, then there’s never any money in the account when the bills roll in. It’s like a game to see who can spend all the money first.
Don’t laugh. I’ve worked with people who shop to try and stay even with their partner’s spending. Lord love a duck! What hope do they ever have of having money left at the end of the month?
It may help to think of your money in four major piles:
- Cash flow
- Emergency
- Planned Spending
- Long-term Saving
Cash flow could also be called keeping-it-together-money. This is the money that comes in and goes out every month to pay bills, buy food, and get you from hither to yon. It’s the majority of your budget (it excludes savings and some other stuff we’ll look at shortly.) When you do up a budget you’re creating the framework for your cash flow. When you get paid, the money flows in. When you pay for something, the money flows out.
Emergency is the money you set aside just in case. You’re supposed to build your Emergency Pile up to between three and six months’ worth of Essential Expenses. And this money should be kept liquid – easy to get to – in a high interest savings account, for example.
Planned Spending is what most people never do. I’ve just bought a new house and I know I’m going to have to replace the roof next year. That’s about $5,000. So I’m going to open up a Roof Account – hey savings accounts are free so go nuts – and every month I’m going to have $500 moved from my house account to that Roof account. When the time comes to do the roof, I’ll be ready. That’s Planned Spending. I’m going to spend the money and I have a plan.
Planned Spending is what you do so you don’t have to use credit. Tons of stuff falls into the planned spending category. From home maintenance to the seasonal clothing you have to buy for the kids, from vacations to that new TV you’ve been eyeing, if you have to accumulate money so you can make a purchase, it’s Planned Spending. You can manage the money in a couple of ways:
- You can set up a separate account for each planned spending thingy you’re doing, or
- You can set up on savings account and then keep a paper trail of what’s going into the account and what it’ll be used for.
So you might set up a page that across the top has the months of the year and down the left side has the things your accumulating money for, and each month you put into the appropriate column the amount in the account for the purpose you’ve designated.
Let’s say you’re saving for a roof ($5000), a vacation in two years ($2500), and those fabulous new boots ($240). You’ve allocated $350 to the roof, $250 to the vacation and $50 to the shoes. Okay, so now you’d move $650 a month to your savings account each month. And each month you’d note how much more you had for your Planned Spending within each category. When you hit your goal amount, you go shopping. See how easy?
It doesn’t have to be big amounts to work. If you have a shopping list and have five things on your list, you may want to set aside $10 a month for the new wallet and $25 a month for the new sheets you need. The idea is to have a plan for accumulating the money you’re planning to spend so that you don’t use credit that can’t be repaid IMMEDIATELY.
And now we come to Long Term Saving. This is the money you don’t touch for a long, long, long time. It’s your retirement money. It may be your kids’ school money. This money is sacred. You don’t dip into it for any reason. It’s your safety net.
If you can wrap your head around the idea of piles of money instead of one big pot, then you’re more likely to keep the amounts you allocate for specific purposes intact. It’s easy to think you’ve got money to burn when you look into your account and see you’ve got $7500 just sitting there, begging to be spent. But if you’ve allocated $5000 to your roof, it’s already spent… on the roof. And if you want a sunny vacation without a credit hangover, that $2500 is already spent… it’s going to pay off the credit card in full when the vacation charges come through.
This idea of piles of money is perhaps one of the most significant differences between the people who are successful managing their money and those who aren’t. Having allocated money to a pile, a body isn’t tempted to spend it on anything else. And having piles of money can be a lifesaver if you’ve got a pal who can’t keep his or her hand off the money in the house account. Having moved to the money out of sight, it’s out of mind until you’ve got enough to make your purchase.
Consuming Ourselves to Debt
November 11th, 2008People can justify spending gobs of money on just about anything. I’ve seen people in deep debt turn themselves inside out to explain why the thing I’m telling them to sell or not buy is sooooooo important.
There’s the new electronic toy that they’ve just bought or are planning to buy on a Buy-now-pay-later program. They say things like, “I have six months to pay it off before there’s any interest. We’ll have it paid off by then.”?? Wanna bet?
If you think you have the discipline to do this, then why didn’t you simply set aside the money you’ll be making in payments until you’d saved enough to pay cash? Because you DIDN’T have the discipline to do it. And when that bill finally does come due, the interest rate will be RETROACTIVE to the date you took that big screen TV with surround sound home, and your interest rate will be about 36%, so you’ll end up spending TWICE what you thought you had.
Here’s another whine that’s like nails on a chalkboard for me: “But it’s my wedding! I dreamed about it forever. It has to be fabulous!”?Really? You owe $30K in student loans and another $15K on your car, never mind the $8 on your line of credit, and you’re going to run up another $35,000 in debt for a party?
If your wedding day is so all-fired important to you, and you want to pretend to be a prince or princess for a day, then why haven’t you saved the money to make it so? I have no problem with how people spend their money, as long as it’s THEIR money they are spending, and not credit. You want to blow $50,000 on a wedding, then have $50,000 in the bank. It’s that simple. But to go into debt for a wedding is just about the stupidest thing I can think of. (Ditto to the parents out there who take on this kind of debt so their little angel can have her dream wedding.)
I’ve heard cars and trucks justified as “safer for the kids.” I’ve heard vacations justified because “we work so hard.” I’ve heard new furniture justified as “an investment.” All the while, the debt keeps growing.
Buying bigger houses than we need is another example of how we can justify spending money beyond our means. We listen to the “experts” who support our desires – they guys who reassure us that the appreciation over time will more than warrant the cost – and then we plunge right in. After all, how can bigger not be better?
We spend on gifts we are giving others that we can’t afford because we don’t want people to think us cheap. We spend money we don’t have so that other people won’t know we don’t have the money. We spend money because we feel guilty and are using stuff to replace the time we should be giving to our friends and family.
And sometimes we spend money because we are laaaazzeee! Instead of doing the research, looking for the deal and spending the least amount necessary, we just buy what’s at hand because it’s convenient, damn the cost.
Having become a society of consumers, we can justify just about anything we want to put on credit. There’s always a “good” reason to spend.
Here’s a quote from Your Money or Your Life:
“…money has become the movie screen on which our lives play out. We project onto money the capacity to fulfill our fantasies, allay our fears, soothe our pain, and send us soaring to the heights. In fact, we moderns meet most of our needs, wants, and desires through money. We buy everything from hope to happiness. We no longer live life. We consume it.”
Now it’s your turn. What have you seen people go into debt for that made you shake your head? And what’s the dumbest thing you ever put on credit?